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Multiple Retiremet Plan question

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Level 3

Happy day...an under-50 years old client has a W2 with box 12D for $19k.  The client is a 10% owner of a partnership and the K-1 Box 14 SE income for $78k and a Sch C for $18k, so $96k combined. 

In addition to the plan he has at his W2 job, he also has an individual 401(k). 

Referring to Proseries' Keogh/SEP/Simple worksheet, I have Part I box 6f marked to compute maximum deductible contribution.  Zero is in box 6e.  The calculation seems to be allowing roughly $37k in deduction and it is carrying that to Sch 1, Part II line 15, otherwise known as the front of the return. 

I visited https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sha... and the first example seems to indicate that the employer can make a non-elective contribution.  I also visited https://www.401kcheckbook.com/solo-401k-contributions-guide-2018-2019/ and it also seems to support the idea that the non-elective contribution is deductible. 

Given what I've shared, does it make sense that it is deductible? 

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4 Replies 4
Highlighted
Level 15

Client gets one $19,000 deferral.

Pension contribution for partnership income is computed at  partnership level - must be a partnership plan. Does the K-1 have a pension contribution on it?

 Client can make a pension contribution for the Sch C business. It would be about $3,300. 

$37K is too much unless you have an amount from the K-1.


ex-AllStar
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Level 3

Happy day...thank you for the courtesy of a reply.  I believe that a 401(k) has two money streams going to it:  the employee deferral and the employer contribution.  The client is excluded from an additional $19k deferral because it was taken from the W2 job.  And I understand the point about the partnership needing to be the source of the retirement plan.  So on the worksheet, Part II adjustment I back out the K1 Box 14 SE income, leaving just the Sch C income to be used for the 401(k) calculation, which reduces the allowable contribution to $17k. 

This is the example from the IRS link I included in the original post:  

Example 1: In 2019, Greg, 46, is employed by an employer with a 401(k) plan, and he also works as an independent contractor for an unrelated business and sets up a solo 401(k). Greg contributes the maximum amount to his employer’s 401(k) plan for 2019, $19,000. He would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $19,000. He would also like to contribute the maximum amount to his solo 401(k) plan.

Greg is not able to make further elective salary deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $19,000, to his employer’s plan. However, he has enough earned income from his business to contribute the overall maximum for the year, $56,000. Greg can make a nonelective contribution of $56,000 to his solo 401(k) plan. This $56,000 limit is not reduced by the elective deferrals Greg made under his employer’s plan because the limit on annual additions applies to each plan separately.

Any thoughts with what the IRS posted?  I know we can't rely on IRS publications for support...but I haven't seen an exclusion on my fellow Proseries users 🙂

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Highlighted
Level 10

@Lord Happy wrote:

Greg is not able to make further elective salary deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $19,000, to his employer’s plan. However, he has enough earned income from his business to contribute the overall maximum for the year, $56,000.


Greg may have enough income to max out his 401(k), but unfortunately Lord Happy's client only has $18K of Sch C income which will put him around $3,300-$3,400 (as Susan mentioned earlier).  You may get a little more if the W-2 job is already maxed on out SS earnings.  See this nice worksheet here:

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/401k-self-employ...

Rick

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Level 11
Level 11

I believe that the total you can contribute to all 401K's for 2019 under 50 is $19000. You are allowed to set up a self employed 401,even if you have a 401 at your W2 job, but the total is still $19000, so it isn't worthwhile setting up a solo 401